Hedge funds resume shorting after biggest short squeeze since 2020

Hedge funds are back to their old tricks. Just weeks after getting caught in the most violent short squeeze since the pandemic-era rebound of March 2020, institutional short sellers are quietly rebuilding bearish positions, this time with a bit more finesse and a lot more caution.

The whiplash started in March 2026, when hedge funds went on a historic shorting spree. According to Goldman Sachs prime brokerage data, short sales outpaced long buys by a ratio of 7.6 to 1 globally. That was the fastest pace of net selling in 13 years. Roughly 76% of those short sales were concentrated in major stock indexes and ETFs, meaning funds weren’t just picking off individual companies. They were betting against the entire market.

The squeeze that followed

Then came April 8. President Trump announced a temporary ceasefire in the US-Iran conflict, and equity markets responded the way equity markets do when existential geopolitical risk suddenly evaporates: they ripped higher.

Hedge funds scrambled to cover. The pace of short covering was the fastest since March 2020, when the post-pandemic rebound caught bearish funds similarly flat-footed. Short exposure in macro products had reached 12% of total gross exposure before the unwind, the highest level since the pandemic itself.

The cautious return to shorting

By late April and into early May, the dust had settled enough for hedge funds to start recalibrating. Rather than loading up on broad index shorts like they did in March, funds are reportedly shifting toward market-neutral stances. Others are selectively rebuilding single-stock and relative-value positions, essentially cherry-picking specific companies to bet against rather than wagering on a wholesale market decline.

Multi-strategy hedge funds appear to have navigated the chaos particularly well. Firms including Citadel, Schonfeld, and ExodusPoint reportedly delivered positive returns through the turbulence, benefiting from nimble repositioning across their diversified strategy pods.

What the positioning tells us

The 7.6-to-1 short-to-long ratio in March wasn’t just a number. It was a consensus trade of remarkable conviction. The fact that 76% of the positioning was in indexes and ETFs made the unwind even more mechanical. When the S&P 500 starts screaming higher, your index short is losing money in real time, and your risk management systems don’t care about your macro thesis.

The episode drew immediate comparisons to March 2020, when hedge funds were caught short heading into the pandemic recovery rally. This time, it was geopolitics rather than central bank policy that flipped the script, but the dynamics were strikingly similar.

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